NEW YORK (Real Money) -- There are clear winners and losers in a rising interest-rate environment. Wednesday we discussed the financial sector and why it'll be among the winners (and why that's particularly true of the smaller regional banks). Today, let's acknowledge that certain sectors are likely to be losers -- and that rate-sensitive utility stocks top that list.
Call me a flip-flopper, but I'm exiting my long position in Southern Co. (SO). Just over a month ago, I recommended this name because I couldn't envision a scenario in which the Fed would raise rates in the near future. Since then, we've seen a disappointing first-quarter advance GDP figure of just 0.2% and a horrendous March non-farm payroll report that's been revised even lower to just 85,000 new jobs. Under these conditions, a Fed rate hike seems even less likely.
But while the Fed still doesn't appear close to raising rates, the market is already doing so, as yields on longer-term U.S. Treasuries have ballooned over the past two weeks. Yield-starved investors have had sparse choices over the past few years, and this forced many of them to into high-dividend investments such as utilities. Higher interest rates will provide investors with a variety of less-risky alternatives, causing money to flow out of the utilities sector.
Looking at Southern Co. now, the technical picture has changed. This stock has broken beneath a support level at $43.65 (black line) and closed beneath it for two consecutive days. This breakdown is occurring on high turnover; eight of the past 10 trading sessions for SO have seen above-average volume (shaded yellow). Also, the stock's MACD (moving average convergence divergence) indicator flashed a sell signal on May 8 (arrow).